Provisions and Contingent Liabilities: AS 29 Year-End File
Year-end provisions are judgement-heavy. Finance should not wait for auditors to ask whether a claim is probable, possible or remote.
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Detailed analysis
AS 29 deals with provisions, contingent liabilities and contingent assets. The close file should capture obligation, probability, estimate, legal correspondence, board/management assessment and disclosure rationale.
Practical example
A customer claim of ₹40 lakh is pending. Applying the three-part test: (1) present obligation - yes, the dispute arose from a past supply already made; (2) probability - legal says settlement is only POSSIBLE, not probable; (3) estimate - the amount itself is also uncertain. Because the outflow fails the "probable" test, this stays a CONTINGENT LIABILITY, disclosed in the notes with the nature of the claim and an estimate of financial effect where practicable - it is NOT booked as a ₹40 lakh provision on the balance sheet. Finance still prepares the case summary, legal opinion, probability assessment and board/audit committee note - the difference is the accounting treatment, not the documentation effort.
Evidence and control checklist
| Area | What to check | Evidence to save |
|---|---|---|
| Obligation identification | Legal, tax, warranty, onerous contract and restructuring items. | Claims register and department confirmations. |
| Probability assessment | Probable, possible or remote classification. | Legal/management memo. |
| Measurement | Best estimate and range of exposure. | Computation and support. |
| Disclosure | Provision vs contingent liability note. | Financial statement disclosure draft. |
| Review and update | Movement from opening to closing balance. | Provision roll-forward and approval. |
For the connected rule, example or next step, see Audit Adjustment Tracker: Passed, Unpassed and Management Representation File.
Common mistakes
- Booking provisions as plug numbers.
- No legal confirmation.
- Not updating old contingent liabilities.
- Ignoring warranties/onerous contracts.
- No disclosure rationale.
Official reference framework
Based only on official India Code, MCA and ICAI source pages listed below. Check the latest Companies Act, Schedule III, accounting standards, Ind AS/AS applicability and auditor guidance before closing or filing.
Official sources used
This article is intentionally source-limited to official India Code, MCA and ICAI material. Source validation date: 17 June 2026. Verify final positions with latest Companies Act, Schedule III, accounting standards, Ind AS/AS applicability and auditor guidance before closing or filing.
- MCA: Accounting Standard (AS) 29 Provisions, Contingent Liabilities and Contingent Assets
- ICAI: Compendium of Accounting Standards
- India Code: Companies Act, 2013 Section 129 - Financial statement
- India Code: Schedule III to the Companies Act, 2013
For the connected rule, example or next step, see AR Ageing and Expected Collection Review: Revenue-to-Cash Control File.
FAQs
A liability of uncertain timing or amount recognised when criteria are met under applicable standard.
A possible obligation or present obligation not recognised due to uncertainty/criteria.
Claims need probability and exposure assessment.
Yes. Circumstances and probability may change.
Claims register, legal opinion, computation and disclosure note.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Business Case Studies & Corporate Strategy
- Official starting point
- www.mca.gov.in
Page source links
For the connected rule, example or next step, see Accounting Policy and Estimate Memo: AS 1 and AS 5 Evidence File.